Chrysler Dealer Closings Add To Commercial Property Woes
May 14 2009 - 2:39PM
Dow Jones News
The announced closings of more than 700 Chrysler dealerships
nationwide is poised to add to the rising vacancy rates in the
embattled commercial real estate industry.
The ensuing fallout, however, is likely to shake out differently
compared to the broader retail market, given complicated land
configurations, rich property values and geographic issues unique
to car dealerships.
"We're in the middle of a recession in which the attention to
real estate difficulties is starting to turn to commercial real
estate," said Paul Taylor, chief economist for the National
Automobile Dealers Association. "The timing is absolutely difficult
for these dealers to try and sell the property if they closed the
dealership."
Chrysler LLC said it is looking to drop 789 dealers from its
retail network of nearly 3,200 to streamline business and move the
bankrupt auto maker to profitability. Chrysler noted in the court
filing that it has significantly more dealers than rivals Toyota
Motor Corp. (TM) and Honda Motor Co. (HMC), but sold fewer cars.
General Motors Corp. (GM) is also expected to tell some dealers
Friday that they face closure.
Taylor said NADA forecast the recession would force 1,200
dealerships to shutter this year with at least 86% of those
closings coming from Chrysler, Ford Motor Co. (F) and GM. And, they
estimated that roughly 360 Dodge and Jeep dealerships would close
due to the recession and credit issues.
The looming closings from Chrysler dealers comes amid a massive
wave of consolidation among auto dealerships and dark stores. To
compensate for declining profits in car sales, auto dealers have
been putting their properties up for sale, which, in many cases,
are more valuable than their business.
"The property is still worth a good or great deal of money,"
said Michael Fay, president of Colliers Automotive Real Estate
Services group. "This is probably the area that will save a lot of
these dealers because of the real estate...They have nothing
else."
Many auto dealers own their real estate and likely purchased the
land many years ago. Even though property values have sharply
declined over the last two years, they can still reap big
profits.
Still, many dealers aren't taking comfort in this valuable
collateral. "These buildings are sole-source facilities," said
Craig Bickmore, executive director of the New Car Dealers of
Utah.
"It's not good, I'll tell you that," he added "It's going to
adversely affect our state, sales tax, property tax, employment,
any kind of a commerce situation."
Colliers' Fay anticipates a growing number of bankruptcy filings
from independent dealers given that many probably borrowed money
against their real estate for property upgrades amid pressure from
manufacturers to continually modernize their facilities.
As with all real estate, location is paramount. Industry experts
say auto dealers looking to unload their land will do better if
they are located in high-density and very developed areas. The
configuration of many dealerships can make it difficult to
repurpose them for other commercial uses, but experts say that
used-car dealerships, shopping centers, big-box retailers or
smaller self-storage facilities are viable replacement tenants.
"The real estate shift, I don't think is going to be that
great," said Gerard N. Murphy, president of the Washington
(D.C.)-Area New Automobile Dealers Association, which has 250
members.
He remained optimistic that the pioneering spirit of American
dealers will sustain the industry during these difficult times.
"The dealers are entrepreneurs, very Americana in that respect,"
he said. "They're very resourceful."
-By A.D. Pruitt and Dawn Wotapka, Dow Jones Newswires,
201-938-2269, angela.pruitt@dowjones.com
(Jeff Bennett contributed to this report.)